Life beyond LOLcats: BuzzFeed gets serious

The cute kittens haven't disappeared but the viral content creator is no slouch when it comes to hard-hitting news.

BuzzFeed has come a long way from cat lists. This month one of its journalists was on the ground in Kiev reporting on the crisis in Ukraine, and last December it published an in-depth article on a Chinese dissident living in Harlem, New York.

The kittens haven't disappeared, but these days there is serious journalism as well.

When Facebook tweaked its News Feed filters in December to weed out low-quality stories and other content, many were waiting to see if it would hurt publishers including BuzzFeed, the leading purveyor of "sponsored content" on the web.

But that didn't happen to BuzzFeed, which continues to log impressive increases in readership. Founder and CEO Jonah Peretti attributes that to the company's investment in building a news operation to complement its staple of entertainment and advertising-sponsored articles.

"There used to be this view that online publishing was about blogs that were very low-cost," said Peretti, 40, who helped start the popular The Huffington Post, now a unit of AOL Inc.

"You couldn't do things like investigations or have reporters. You could just do a smart take or snark on things. If you wanted to actually say, 'I'm going to sit down and talk to people and spend more than three hours on a story,' then you go work in old media. I think that is changing."

Founded in 2006, BuzzFeed is now among the top 10 most-visited news and information sites in the United States, joining the ranks of established media outlets like CNN and The New York Times.

Over the past year, BuzzFeed's traffic has soared fourfold, with more than 160 million unique visitors, according to online measurement and advertising firm Quantcast.

The social news and entertainment company is famous for producing advertising-sponsored "listicles" that go viral, such as lists of golden retrievers (sponsored by a pet food brand) or popular quizzes like "Which billionaire tycoon are you?" (News Corp's Rupert Murdoch took the quiz and got himself).

Foray into serious journalism

Less known outside media circles is BuzzFeed's foray into serious journalism, which began two years ago when it hired Ben Smith, a former Politico reporter, as its editor-in-chief.

Headquartered in New York, BuzzFeed now has more than 150 journalists, an investigative reporting unit, bureaus in Australia and the United Kingdom, and foreign correspondents in far-flung places like Nairobi and the Middle East.

Its expansion comes amid a wave of investor interest in new media companies that are trying to capitalize on a decade-long wave of job cuts at newspapers, and new technology that has upended how news and advertising are produced and distributed.

"As these social technology spaces like Google, Facebook and Twitter compete with each other, they want to be the place you come and live in digital land," said Amy Mitchell, director of journalism research at the Pew Research Center. "A part of what people look for is news."

BuzzFeed, which has about 400 employees, raised $US46 million in venture capital from the likes of Lerer Ventures, Hearst, RRE and Japan's SoftBank.

"On the journalistic side, their new level of ambition makes a difference to me as an advertiser if it grows their audience," said Andrew Essex, vice chairman at advertising agency Droga5.

Supplier to social media pipes

BuzzFeed and other media companies, ranging from upstarts like Vox Media and Upworthy to established media outlets such as the Washington Post, depend on social media to fuel readership. BuzzFeed gets about 75 percent of traffic referrals from social media, and the majority of that is from Facebook.

Last August, Facebook made a change to News Feed, which is prominently featured on a user's home page, pushing more stories through the stream. Many media sites saw their referral traffic soar. From September 2012 to September 2013, BuzzFeed's traffic jumped 855 percent, Facebook said in a blog post.

But in December, Facebook made another adjustment to News Feed's filters to improve the "quality" of the content.

BuzzFeed appears to have benefited – the number of people who visited the site rose 20 per cent from December to mid-February, according to Quantcast. But other sites have suffered a drop in traffic since Facebook's tweaks.

An oft-cited rival of BuzzFeed is Upworthy, which aggregates material across the web to help its content go viral. It experienced a dip in traffic during the same period. Upworthy, which grew at an even faster clip than BuzzFeed last year, experienced a 22 per cent decrease in unique users from December to mid-February, according to Quantcast.

To be sure, there are many reasons why the number of people visiting a site can fluctuate from month to month, including seasonal factors and news items. An Upworthy spokeswoman pointed to the site's sharp rise in unique users from October to November, and said the number of people visiting Upworthy is still up significantly since October.

Facebook's dominance in social media is similar to Google's leading position in Web search. When the Internet giant made several changes to the formula that determines search query results to ensure more "quality" information, that hurt some media companies that relied on high search results, including Demand Media and Rap Genius.

Peretti said he is not worried that Facebook could harm BuzzFeed's prospects because the company distributes its content through other social media platforms, such as Twitter and LinkedIn. As long as there is benefit for the consumer, he said, any traffic fluctuations should work out in the long run.

BuzzFeed expects revenue to double to $120 million this year, according to a person familiar with the company. BuzzFeed declined to give financial figures. Peretti would only say that the company is profitable.

A mash-up

BuzzFeed's investors say they are focused on the company's growth, including news, and decline to discuss exit strategies such as an initial public offering or sale to another company.

"BuzzFeed must be in the real news business," said Kenneth Lerer, chairman of BuzzFeed and an investor in the company through New York-based Lerer Ventures.

"You have to deliver the whole package. There are not a lot of companies serving that demo with hard news," he said, referring to readers between the ages of 18 and 34.

BuzzFeed says it plans to hire more journalists and is keen to expand its foreign news coverage. Still, some media experts say balancing a mix of serious stories with sponsored content can be difficult.

For instance, BuzzFeed published a list of "alleged" secret menu items at McDonald's Corp, such as the Monster Mac, McCrepe and Pie McFlurry. The list looked like an ad sponsored by the hamburger chain, but it was actually a tongue-in-cheek article produced by a BuzzFeed staff writer.

"The one question for BuzzFeed as they move further to produce their own journalism is whether they will be able to successfully straddle that line of content on their site that is purely for commercial gain and content that is meant to inform people about issue or events they care about," said the Pew Research Center's Mitchell.

No one expects sponsored content to go away, especially as advertisers are expected to earmark more dollars toward the ad form. Several major news organisations, including The New York Times, The Guardian, Time Inc and Hearst, are publishing sponsored content. It offers more lucrative advertising rates at an average cost-per-thousand-users of around $10, compared with a banner ad that typically offers only 50 cents to $1 on the ad exchanges.

"What causes the question mark in BuzzFeed is if it can credibly make news when the top thing on its home screen is '28 things that people with big boobs can simply never do.' Can that door swing both ways? I think it can. It's a great mash-up."

BuzzFeed is confident that chasing hard news is good for business. Its in-depth report about the Chinese dissident in Harlem, Dr Gao Yaojie, had more than 700,000 views. A 6000-word story about buying a house in Detroit for $US500 got 1.5 million views. For comparison, The New York Times' popular "Snow Fall" interactive feature got about 3.5 million views.

"There are things now that we can try and do that may have been out of our reach before," said Smith, BuzzFeed's editor-in-chief. "We can step back and swing for the fences. We can send reporters down rabbit holes, which I'm really excited about."

IMPORTANT: This information is general financial product advice only and you should consider the relevant product disclosure statement (PDS) or seek professional advice before making any investment decision. Product disclosure statements for financial products offered through InvestSMART can be downloaded from this website or obtained by contacting 1300 880 160. You should consider the product disclosure statement before making a decision about a product. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.